A conditional offer is an offer on a property that allows you to set conditions that must be met to close the deal. This can be done for a variety of reasons, such as if you need to sell your existing home or secure financing.
Let’s take a look at what conditional offers are, how they work, and how contingencies can impact buyers and sellers.
Definition and Examples of Conditional Offers
Common in real estate, conditional offers are offers made by buyers to sellers that include one or more contingency or “condition” that needs to be met for the sale to occur.
- Alternate name: contingent offer
Both buyer and seller must agree to the conditions. If the condition is not satisfied within a specific time frame, the contract is considered void. Here are some examples of common contingencies:
- Sale of your existing home
- Satisfactory home inspection
- Completed repairs as agreed on
- Completed financing
- Appraisal contingency
Conditional offers may not be as attractive to sellers as unconditional offers because they offer an out to a buyer if contingencies are not met. Because of this, sellers can include a clause in the sales agreement that allows them to continue marketing the home. Called a “kick-out clause,” this allows the seller to accept other, more attractive, offers, even after they’ve accepted a conditional offer. The purpose of this clause is to provide protection in the case that the buyers’ conditions aren’t satisfied and they choose to withdraw their offer.
When buyers sign a sales agreement with a kick-out clause, they also gain the right of first refusal. This gives them a specific time period to respond to other offers that the seller receives. If they choose not to alter their conditional offer, they may lose out on the property.
How Conditional Offers Work
Let’s say you are looking to purchase a property in the city but you already own a home in a rural location. You’ve paid off nearly half of your 30-year mortgage, and you can’t afford to make payments for two separate houses.
It’s a buyer’s market, which means there are plenty of homes from which to choose, and sellers may be more accommodating to accepting contingencies to get their home sold.
In a seller’s market, many homebuyers may be more wary of including too many conditions in their offers. These can be seen as barriers to purchase and lower your competitiveness compared to other prospective buyers.
You find a home for which you put in an offer that’s conditional on the sale of your current home. This means that in order for the transaction to close, someone will need to purchase your home first. You’ll then use the proceeds from your home sale to fund the purchase of your new property. If you fail to sell your home, the sale can fall through.
As a seller, conditional offers can be less enticing than unconditional offers, or clean offers. Examples of unconditional offers may include an all-cash offer on the property as-is with no home inspection necessary. These offers are more attractive than a conditional offer that can fall though if contingencies aren’t met.
As a seller, you can choose whether or not to accept a conditional offer.
Are Conditional Offers Worth It?
For many buyers and sellers, conditional offers are worth it.
As a buyer, you’ll often be making a conditional offer due to necessity. This can be because you’ll need to qualify for a mortgage or sell your existing home. You may also want to make sure that the home is in good condition, in which case, your offer may be contingent on a satisfactory home inspection.
As a seller, you’ll likely prefer an unconditional offer rather than one with contingencies, especially since additional paperwork can bog down the closing. However, if you don’t have other options, conditional offers are a common way to get your home sold.
Ultimately, whether a conditional offer is worth it for you depends on your personal situation and broader market conditions.
- Conditional offers on a home gives the buyer the ability to set contingencies that need to be met before a deal will close.
- Common contingencies include selling an existing house and securing financing.
- Sellers don’t have to accept conditional offers, although they’ll want to consider market conditions before they decide.
- Sellers can choose to include a clause in the sale agreement that allows them to continue marketing and accepting offers on the home in case the conditional offer falls through.